A complete guide to managing a diversified investment portfolio

(Financial Express, 3 January 2024) A complete guide to managing a diversified investment portfolio

by Prashant Tandon, Managing Director and Chief Executive Officer, Lighthouse Canton-Dubai

Diversification of one's portfolio can potentially reduce volatility, yet many traditional assets such as stocks, bonds and real estate become correlated under the stress of global events.

In the world of finance, there exists a nugget of wisdom that is often considered a universal truth: “Don’t put all your eggs in one basket.” This adage encapsulates the essence of diversification, a bedrock principle in almost all financial investment and wealth management strategies. Diversification is hailed as the key to mitigating risk and achieving long-term growth, serving as a shield against the unpredictable storms of the market.

The rationale is straightforward: when one investment falters, others may thrive, thereby reducing the overall risk to the portfolio. This risk mitigation strategy assumes that individual assets do not move in perfect correlation with each other. By holding a mix of investments, the hope is that the gains from outperforming assets will offset the losses from underperforming ones.